The Match Out: ASX hit 2%, buyers of the dip had a day off, IT sector biggest drag

James Gerrish

Market Matters

The market opened lower this morning and instead of buyers emerging into the dip we got the opposite with a consistent sell-off right across the market with 191 stocks from the ASX 200 closing lower on the day. 

All sectors finished in the red, however, IT felt post pain down ~3%. Green was a scarce colour on the screen and aside from the VIX, there were only two stocks that rose more than 1%, namely Resmed (RMD) & Whitehaven Coal (WHC).

  • The ASX 200 finished down -142pts / -1.90% to 7369 – it felt like stops got triggered as we broke the low of the last few weeks ~7400 which intensified the sell-off.
  • A typical ‘risk off’ day with Staples, REITS & Healthcare holding up best, IT down -3.18%.
  • It felt a day like this was brewing for a while, this morning we posed the question - what now, reporting season is behind us and it feels like we’re in “no man's land” with a potential Christmas rally still some distance away and today that air pocket became obvious – a lack of buyers stepping up to the plate which is understandable – what’s the rush right?
  • We continue to think equities remain very attractive compared to the interest being earned on cash and until we see an aggressive rise in bond yields MM believes the ”buy the dip” strategy will continue to pay dividends, even though it was clearly not obvious today.
  • Virgin UK (ASX: VUK) caught my eye down ~7%, a stock we highlighted in the AM note today as being on our radar into a weakness – a few more bad days there and that will likely find its way into the portfolio.
  • Iron Ore has been very weak of late – it’s dragged down the bulk miners however there are signs that the selling is drying up. Iron Ore starting to stabilise which makes sense as China edges down the easing path. Reducing reserve ratio requirements (RRR’s) is generally step one, then more aggressive stimulus & rate cuts often follow.
  • China starting to ease policy is positive for the commodities trade, and while it’s never easy to know for sure what China will do, they tend to lead you down a path and what we’ve seen so far implies looser rather than tighter policy from here.
  • Fortescue (ASX: FMG) -0.61% has been whacked down from ~$26 to be sub ~$18 today – obviously, the dividend has come out of that, however, it’s a big move and today outperformance in a weak market implies it’s nearly time to go back into what Twiggy now describes as a renewable s company that mines Iron Ore…please! Citi also upgraded to buy.
  • Orocobre (ASX: ORE) was another stock hit today, down 6.32% - volatile space full of hot money – we like this into further weakness. CS downgraded Lithium stocks today.
  • Not even Gold copped a bid today trading flat in Asia – currently, $US1788, bouncing around US$1800 continues – frustrating!
  • Iron Ore Futures were down a touch, ~0.5% today although nothing sinister.
  • In Asia, Hong Kong was the only market that kept pace with our weakness, Nikkei off -0.57%, China down -0.2%.
  • US Futures sold off during our time zone, but not materially so, S&P off ~0.4% at our close. 

ASX 200 Chart

Broker Moves

  • Qube Cut to Neutral at Credit Suisse; PT A$3.55
  • Imdex Raised to Outperform at Macquarie; PT A$2.65
  • Fortescue Raised to Buy at Citi; PT A$18.50
  • Pilbara Minerals Cut to Underperform at Credit Suisse; PT A$1.95
  • Orocobre Cut to Underperform at Credit Suisse; PT A$8.60
  • Macquarie Group Cut to Hold at Morgans Financial Limited

Major Movers Today

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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